How could the company that saved the UK’s Jaguar Land Rover from bankruptcy fail to turn the Nano – a car sometimes dubbed a miracle of frugal engineering – into a blockbuster?

That is the question being asked by analysts and investors following a turbulent year for the Tata Group, India’s second-largest industrial company, controlled by Ratan Tata.

When the 73-year-old, who owns 1 per cent of the group, announced in March 2008 that his company would buy JLR from Ford for $2.3bn, many analysts said the deal made little business sense and questioned whether Tata Motors could turn round Jaguar’s lossmaking operation where Ford had failed.

Morgan Stanley’s autos analyst at the time, Balaji Jayaraman, went so far as to call the acquisition “value-destructive given the lack of synergies and the high-cost operations involved”.

At the time the only silver lining for Tata Motors – which had taken out a $3bn bridge loan to buy the troubled JLR – seemed to be its groundbreaking Nano, which would go on sale from April 2009.

With the basic Nano model available at Rs100,000 ($2,000), half the price of the next cheapest car on the market, the vehicle was forecast to become the group’s new cash cow. Tata and industry experts expected it to create a new segment of Indian car owners: low-income first-time buyers, shifting from two wheels to four.

Today the reality could hardly be more different.

In less than three years JLR has gone from being a troublesome trophy to the biggest cash-generating unit of Tata Motors, contributing the vast majority of the carmaker’s $2.1bn net profit in the financial year ending March 2011.

In that period, global sales rose 26 per cent compared to the previous year, as the Indian group attracted new customers both in developed and emerging markets, such as China and Russia. JLR’s profit rose to £1.12bn ($1.7bn), from £51m in 2010.

The Nano, meanwhile, has headed in the opposite direction. Sales have been consistently dismal, and are now worsening – recording a 47 per cent fall in September compared with the same month a year before. More than two years after its introduction, the Nano only recently crossed the 100,000 mark; before the launch the carmaker hoped to sell about 500,000 cars a year.

The broad problem, according to industry watchers, is that all of Tata’s focus went on reviving JLR, the assumption being that the hype surrounding the Nano would all but guarantee its success. But a series of specific mis-steps also combined to blight the project.

The Nano’s birth was troubled. Production was delayed by about a year after a land dispute in 2008 and, by the time the car came out, most of the hype had waned.

In the meantime its competitors launched similar cars at competitive prices, while Tata failed to set up a strong dealership network in rural areas, where its car’s main target-customer pool is based.

If that were not enough, marketing also quickly became a problem. An executive at a rival carmaker based in India told the Financial Times that Tata failed to understand the Indian psyche: “Nobody wants to buy the world’s cheapest car.”

With JLR, the story was different. Tata Motors had a head start when it took on the failing group, given that both Jaguar and Land Rover were established brands that still had resonance with consumers, at least in the UK.

But the Indian group also moved quickly to cut staff and slash PR budgets. They also injected fresh cash to hire new engineers and experienced German executives, build a new plant and develop new models.

Unfortunately, analysts say, there is little in Tata’s JLR success that could be used to revive the seemingly doomed Nano brand.

Tata has stepped up its efforts, including a new marketing campaign, dealerships in midsized cities and financing options for the car with the help of 29 Indian banks.

Even so, many analysts believe the company should now consider bringing in outside experts, as it did with JLR, to help it think again about ways to raise the Nano’s image and boost sales.

“In many ways Tata Motors failed to carry forward the excitement from the launch, and it has been a rapid downward journey from there,” says Deepesh Rathore, managing director for IHS automotive in India.

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